With a decline of 33.43% (class V shares), the NESTOR Europe Fund performed very poorly in the first quarter. Overall performance is significantly below the benchmark MSCI Europe index (-23.13%).
We reported comparatively high economic resilience only last year, but our consumer- and service-oriented companies in particular are now subject to the international lockdown, which would have been only temporarily very painful had the comprehensive closure measures been gradually phased out after Easter at the latest. This is what we are currently assuming.
As investors, we have to deal with varied, extremely complex facts. When we first heard of the emergence of a "new" coronavirus, we immediately focused on this disease. We had to find out whether this would be a serious threat or a gross exaggeration, as was the case with "swine flu" a good 10 years ago. The latter turned out to be very mild, but was hugely inflated by the media. At that time in Mexico, public life was shut down and people switched to panic mode. And in Europe a questionable vaccine was acquired for hundreds of millions of euros, but later had to be largely destroyed.
As with almost all events, there were (and are) strongly divergent views about the assessment of Covid-19 too. We considered analysis by numerous university experts to be plausible, realistic and particularly credible, as they have decades of experience. Many saw (and still see) no evidence of an extraordinary health threat. They also revealed significant inadequacies in data collection. Prof. Bhakdi even felt compelled to write a passionate open letter to the Chancellor, in which he, as a democrat, expressed his criticism of the measures taken. The renowned New England Journal of Medicine also came to the following conclusion on 26 March 2020:
"This suggests that the overall clinical consequences of Covid-19 may ultimately be more akin to those of a severe seasonal influenza (which has a case fatality rate of approximately 0.1%) or a pandemic influenza (similar to those in 1957 and 1968) rather than a disease similar to SARS or MERS, which have had case fatality rates of 9 to 10% and 36%, respectively."
Only the future can provide a final assessment as to the appropriateness of the current measures. Our sympathy goes out to all those affected by the disease and their relatives, but also to those economically affected.
Does the crash of the century hold the opportunity of the century?
Crises also harbour considerable opportunities due to the sell-off phases on the stock market. Because we pay attention to above-average equity ratios and a high level of freely available liquidity, our investments are also well equipped for lean times. Brand loyalty and popular products bring the consumer back quickly. Moreover, we expect a wave of purchases after the end of the closure measures, when consumers are ready to satisfy their pent-up appetite for consumption. The services sector should also be able to pick up speed faster than industry. In this case, NESTOR Europe offers considerable upside potential. With the French Teleperformance and Hornbach Holding, we have added two promising new securities at sellout prices.
Outlook:
If, on the basis of the knowledge gained, the general restrictions are to be relaxed after Easter, we expect a substantial recovery of the economy and stock markets. Coronavirus would then be a long and very hard winter that paralyzed the economy for several weeks. However, a much longer lockdown would entail similarly severe damage and would be tantamount to a broad expropriation of small and medium-sized businesses. But we expect the first exit steps in Germany after Easter, comparable to what was already announced in Austria on 6 April 2020. This should also give the stock market a tangible boost again. Since bouts of influenza normally subside in April anyway, there is also the possibility of a very strong recovery. The NESTOR Europe Fund therefore started to revive back in early April, but, as already indicated, it still has considerable potential for recovery.
Dirk Stöwer, Kontor Stöwer Asset Management GmbH